Linear Optimization

Jaypee Business School, Jaypee Institute of Information Slide - 1

 Optimization
• Optimization is the process of selecting values of decision
variables that minimize or maximize some quantity of
interest.
• Optimization models have wide applicability in operations
and supply chains, finance, marketing, and other
disciplines.

Jaypee Business School, Jaypee

Copyright Institute
© 2021 Pearson Educationof
Ltd. Information Slide - 2
 Linear Optimization Models
• A linear optimization model (often called a linear
program, or LP) has two basic properties.

1. The objective function and all constraints are linear

functions of the decision variables.
– This means that each function is simply a sum of
terms, each of which is some constant multiplied by a
decision variable.
2. All variables are continuous.
– This means that they may assume any real value
(typically, nonnegative).
Jaypee Business School, Jaypee
Copyright Institute
© 2021 Pearson Educationof
Ltd. Information Slide - 3
 Integer Linear Optimization Models
• In an integer linear optimization model (also called an
integer program, or IP model), some of or all the
variables are restricted to being whole numbers.
– A special type of integer problem is one in which
variables can be only 0 or 1.
• More difficult to solve, but have important applications in
scheduling and supply chains.

Jaypee Business School, Jaypee

Copyright Institute
© 2021 Pearson Educationof
Ltd. Information Slide - 4
 Nonlinear Optimization Models
• Whenever either the objective function or a constraint is
not linear, we have a nonlinear optimization model (also
called a nonlinear program, or NLP model).
– The objective function and/or constraint functions are
nonlinear functions of the decision variables.

Jaypee Business School, Jaypee

Copyright Institute
© 2021 Pearson Educationof
Ltd. Information Slide - 5
 Generic Examples of Linear
Optimization Models (1 of 2)
Type of model Decisions Objective Typical Constraints

Product mix Quantities of product to Maximize contribution Resource limitations (for

produce and sell to profit example, production
time,
labor, material);
minimum sales
requirements; maximum
sales
potential
Process selection Quantities of product to Minimize cost Demand requirements;
make using alternative resource limitations
processes
Blending Quantity of materials to Minimize cost Specifications on
mix to produce one unit acceptable
of output mixture
Portfolio selection Proportions to invest in Maximize future Limit on available funds;
different financial return or minimize risk sector
instruments exposure requirements or
restrictions; proportional
relationships on
investment mix

Jaypee Business School, Jaypee

Copyright Institute
© 2021 Pearson Educationof
Ltd. Information Slide - 6
 Generic Examples of Linear
Optimization Models (2 of 2)
Type of model Decisions Objective Typical Constraints

Transportation Amount to ship between Minimize total Limited availability at

sources of supply and transportation cost sources;
destinations required demands met at
destinations
Multiperiod production Ouantities of product to Minimize total production Limited production rates;
planning produce in each of several and inventory material balance
time costs equations
periods; amount of
inventory
to hold between periods
Multiperiod financial Amount to invest in short Maximize cash on hand Cash balance equations;
management term instruments required cash obligations

Production/Marketing Allocations od advertising Maximize profit Budget limitation;

expenditures;production production
quantities Iimitations; demand
requirements

Jaypee Business School, Jaypee

Copyright Institute
© 2021 Pearson Educationof
Ltd. Information Slide - 7
 Developing Linear Optimization
Models
1. Identify the decision variables - the unknown values that the model
seeks to determine.
2. Identify the objective function - the quantity we seek to minimize or
maximize.
3. Identify all appropriate constraints - limitations, requirements, or
other restrictions that are imposed on any solution, either from
practical or technological considerations or by management policy.
4. Write the objective function and constraints as mathematical
expressions.
5. Implement the mathematical model on a spreadsheet.

Jaypee Business School, Jaypee

Copyright Institute
© 2021 Pearson Educationof
Ltd. Information Slide - 8
 Example 13.1: Sklenka Ski Company:
Identifying Model Components (1 of 4)
• SSC sells two snow ski models - Jordanelle & Deercrest.
• Manufacturing requires fabrication and finishing.
• The fabrication department has 12 skilled workers, each of whom works 7
hours per day. The finishing department has 3 workers, who also work a
7-hour shift.

• Each pair of Jordanelle skis requires 3.5 labor-hours in the fabricating

department and 1 labor-hour in finishing.

• The Deercrest model requires 4 labor-hours in fabricating and 1.5 labor-hours

in finishing.

• The company operates 5 days per week.

• SSC makes a net profit of $50 on the Jordanelle model and $65 on the
Deercrest model.
Jaypee Business School, Jaypee
Copyright Institute
© 2021 Pearson Educationof
Ltd. Information Slide - 9
 Example 13.1: Sklenka Ski Company:
Identifying Model Components (2 of 4)
• Step 1: Identify the decision variables.
• The company wants to determine how many of each model
should be produced on a daily basis to maximize net profit.
• Define
– Jordanelle = number of pairs of Jordanelle skis
produced/day
– Deercrest = number of pairs of Deercrest skis produced/day
• Clearly specify the dimensions of the variables!

Jaypee Business School, Jaypee

Copyright Institute
© 2021 Pearson Educationof
Ltd. Information Slide - 10
 Example 13.1: Sklenka Ski Company:
Identifying Model Components (3 of 4)
• Step 2: Identify the objective function.
• SSC wishes to maximize net profit, and we are given the
net profit figures for each type of ski.
– SSC makes a net profit of $50 on the Jordanelle model
and $65 on the Deercrest model.

Jaypee Business School, Jaypee

Copyright Institute
© 2021 Pearson Educationof
Ltd. Information Slide - 11
 Example 13.1: Sklenka Ski Company:
Identifying Model Components (4 of 4)
• Step 3: Identify the constraints.
– Look for clues in the problem statement that describe limited resources that are
available, requirements that must be met, or other restrictions.

• Both the fabrication and finishing departments have limited numbers of workers, who
work only 7 hours each day; this limits the amount of production time available in each
department:
– Fabrication: Total labor hours used in fabrication cannot exceed the amount of
labor hours available.
– Finishing: Total labor hours used in finishing cannot exceed the amount of labor
hours available.

• The problem also notes that the company anticipates selling at least twice as many
Deercrest models as Jordanelle models:
– Number of pairs of Deercrest skis must be at least twice the number of parts of
Jordanelle skis.

• Negative values of the decision variables cannot occur (“nonnegativity constraints”).

Jaypee Business School, Jaypee

Copyright Institute
© 2021 Pearson Educationof
Ltd. Information Slide - 12
 Developing a Mathematical Model
• Represent decision variables by descriptive names,
abbreviations, or subscripted letters.

– For mathematical formulations involving many

variables, subscripted letters are often more
convenient.
– In spreadsheet models, we recommend using more
descriptive names to make the models and solutions
easier to understand.

Jaypee Business School, Jaypee

Copyright Institute
© 2021 Pearson Educationof
Ltd. Information Slide - 13
 Example 13.2: SSC - Modeling the
Objective Function
• Profit per pair of skis sold:$50 for Jordanelle skis, $65 for
Deercrest skis
• Objective Function: Maximize total profit= 50 Jordanelle +
65 Deercrest
• Note how the dimensions verify that the expression is
correct:

Jaypee Business School, Jaypee

Copyright Institute
© 2021 Pearson Educationof
Ltd. Information Slide - 14
 Translating Constraints Mathematically
• Constraints are expressed as algebraic inequalities or equations, with
all variables on the left side and constant terms on the right.
• Look for key words in word statements of constraints:

– “Cannot exceed” translates mathematically

as
– “At least,” would translate as

– “Must contain exactly,” would specify an “= ” relationship.

• All constraints in optimization models must be one of these three
forms.

Jaypee Business School, Jaypee

Copyright Institute
© 2021 Pearson Educationof
Ltd. Information Slide - 15